Britain would be a “better place” if it left the European Union, according to one of London's largest hedge funds.

Toscafund said the UK had nothing to fear if it exited the bloc, as it would free the country from Brussels' repeated power grabs.

"If the EU doesn’t want to reform, we should leave it," the fund said in a report.

Tosca, which manages around $4bn (£2.8bn) of assets and has stakes in a number of UK-listed companies, including housebuilder Redrow and Argos owner Home Retail Group, said London's status as Europe's financial hub would not be threatened by an exit because there was no "plausible alternative in the western hemisphere".

Tosca said other major cities in Europe and the US could not compete with London as a financial centre, whether it was inside or outside the EU Photo: Canary Wharf Group

New York or Frankfurt could not compete for the “hugely important and lucrative role,” said Savvas Savouri, an economist at Tosca.

David Cameron is preparing a final diplomatic push before EU leaders meet for a crunch summit in Brussels on Thursday to discuss a new deal for the UK to remain in the EU.

The prime minister is due to hold talks with Francois Hollande, the French president, and Martin Schulz, the head of the European Parliament.

Mr Savouri said the UK had become a "trailblazer of much needed and welcome reform", exposing flaws in an EU that had "overreached itself" in recent years.

It said the bloc had been transformed from "a much needed economic union to one with unwelcome political ambitions".

Mr Savouri claimed a British exit was unlikely to be as traumatic as some fear, with a falling pound likely to make Britain more competitive.

He said any attempts to "economically ostracise" the UK if it voted to leave would probably backfire, resulting in "self-inflicted trauma on a number of EU members".

"Consider for a moment how the boards of both BMW and VW might react to their car making operations across England suffering trade-sanctions which in large part have been orchestrated by their own Government," he said.

"We should keep in mind that our dynamic, strong and supply-side reformed economy has dealt us a great hand, while the EU is playing with a great deal of bluff."

However, a separate report published by a leading manufacturing association described Brexit as a "lose-lose" situation for manufacturers across the bloc, which could trigger a "downward spiral" in UK growth.

The Council of European Employers of the Metal, Engineering and Technology-based industries (CEEMET) said British industry would suffer a drop in output of 0.5pc annually over 15 years if it left the EU, sparking a decline across the rest of the bloc.